Credit derivatives: LevX index kicks off for select few
Europe gets its LCDS index but settlement disputes mean many banks remain on the sidelines.
Europe’s first loan credit default swap (LCDS) index was launched at the beginning of November: the iTraxx LevX index. The development of such an index is certainly crucial if the LCDS market is to achieve the kind of liquidity that its proponents are hoping for but as with any new CDS index there are a series of issues that still need to be resolved. A US index, LCDX, is expected to be launched early next year.
The European index has just six dealers at launch: Barclays Bank, Credit Suisse, Deutsche Bank, Dresdner Kleinwort, Lehman Brothers and Morgan Stanley. Markit will provide daily pricing.
LevX was launched in two stages: the senior version at the end of October and the subordinated version on November 13. Both comprise the 35 equally weighted most liquid credit agreements in their respective markets (there is no overlap between the second- and third-lien tranches for credits in the subordinated index). The index is traded under iTraxx’s existing licence agreements with International Index Company and will be rolled on a semi-annual basis.
An initial criticism of the index is the small number of dealers. This did not seem to dampen initial enthusiasm, however.